8/21, 6:08 PM (Source: TeleTrader)
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IMF warns of impact from import tariffs, currency war

Monetary easing underpins domestic demand including that for foreign goods but it also pressures the currency's value, making imports more expensive, the International Monetary Fund said in a blog post on Wednesday and claimed depreciation "won't bring a lasting improvement" in the trade balance. Amid a race among the world's central banks to increase stimulus, mostly by lowering interest rates like in the United States, researchers led by Gita Gopinath urged governments against "beggar-thy-neighbor policies" and warned a currency war and import levies don't improve the situation in foreign trade.

Piling up foreign currencies or taxing capital inflows aren't effective and it even brings disruption on an international scale, according to the IMF, which points to the need for macroeconomic and structural action and fighting the rising inequality and the slowdown in the expansion of gross domestic product.

"A 10% depreciation (vis-à-vis all currencies) improves a country’s trade balance by about 0.3% of GDP in the near term, on average, with most of the effects coming through a contraction of imports. In part, this reflects the fact that trade is largely invoiced in dollars, which means that for most countries export volumes tend to respond little to exchange rates in the short run. This applies to key US trading partners," authors added in the piece. They said the fall in the Chinese yuan by 10% versus the dollar since early 2018 against a rise in US tariffs for goods from the most populous country by 10% on average show the currency flexibility "has allowed it to be a buffer."

Breaking the News / IT